Fed is cautious and its Chairman Jerome Powell douses some market optimism with a bleak U.S. economic picture, but he reaffirms continued policy support.
Powell said that a full U.S. economic recovery will not occur until USA brings the coronavirus epidemic under control. The Fed chairman also cautioned that output and employment would remain short of their pre-pandemic levels for a long time.
That remains far from certain, with new coronavirus infections hitting record highs in six U.S. states, including Texas and Florida, on Tuesday. China has also sharply established restrictions on people leaving Beijing in an effort to contain the worst flare-up since February.
Further, data showed U.S. retail sales bounced back sharply in May. Sales jumped by a record 17.7%, recovering more than half the losses of the previous two months.
The Trump administration was also reportedly preparing an up-to $1 trillion infrastructure package. This was initially promised more than three years ago.
Geopolitics also lurked as a worry. India reported 20 of its soldiers had been killed in clashes with Chinese troops at a disputed border site. Also, North Korea rejected a South Korean offer to send special envoys and would redeploy troops at the border.
Canada’s annual inflation rate fell 0.4% in May, negative for the second month in row. The COVID-19 pandemic pushed gasoline prices lower year-over-year, outweighing a jump in food costs, according to Statistics Canada. The Canadian dollar shrugged off the inflation data and was trading nearly unchanged at 1.3543 to the greenback.
START TRADINGForex – Fed is cautious but still supportive
Record-high coronavirus infections in six U.S. states along with new cases in Beijing drove the sentiment in the markets.
The dollar rose from early lows on Wednesday as investors wary of wider geopolitical risks sought its relative safe haven. The greenback edged 0.2% higher to 97.14 against a basket of currencies, lifting it 0.4% from the day’s lows. The index has bottomed out from a three-month low last week, but the broad outlook remains cautious.
The dollar was up a touch on the Japanese yen at 107.34, while the euro stood at $1.1244, off its recent top of $1.1422.
The Fed’s cautious message also checked momentum in the euro. The common currency remained well below a three-month high of $1.1422 hit last week. It was trading at $1.1238 on Wednesday, down 0.2% after rallying nearly 5% since the recovery fund Franco-German proposal in late May.
Sterling was slightly weaker on Wednesday after data showed inflation fell to its lowest level since June 2016 last month. The British pound was last trading down 0.1% versus the U.S. dollar and the euro, at $1.2567 and 89.66 pence respectively.
In commodity markets, gold was stuck at $1,717 and well within the $1,670/$1,764 range of the past few weeks.
Oil prices swung in and out of the red amid an increase in U.S. crude inventories. They had climbed 3% on Tuesday after the International Energy Agency (IEA) raised its oil demand forecast for 2020.
Brent crude futures were last at $40.45 a barrel having slithered between $41.46 and $40.06 a barrel. U.S. crude dipped 60 cents to $37.70.
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Sources: Reuters, Investing, CNN money